September 15, 1976
In the Twelfth District the economy is continuing its moderate rate of expansion. Consumers remain the major source of demand and business spending is cautious. After a mid-summer pause, retail sales have resumed their steady growth. Automobile sales of the larger domestic models are particularly good. Home-building activity is increasing, and the demand for forest products has improved. In most agricultural areas of the District, production has been good, but there is concern about the effect of declines in prices on farm income. Bankers report steady demand for consumer and real estate credit but little strength in commercial loan demand.
Retail sales appear to have resumed their climb after a pause in June and July and are running at 10 to 15 percent above the same period a year ago. The greatest strength has been in nondurables. Customer acceptance of back-to-school sales and fall lines has been described as good. Retailers are generally optimistic about prospects for the rest of the year, but they are being careful in building inventories. Consumer durables are relatively weak and large-ticket items are moving slowly in most areas. The Western tourist industry has experienced an excellent summer. In Oregon, tourist expenditures are up 10 percent over last year.
Automobile sales have been strong through August. Domestic large models have been selling well; so that by the end of the month, many dealers had sold out some lines. Domestic economy car sales have been weak. The market for foreign cars has been mixed, but sales have jumped in the last month.
Home-building activity is increasing in many areas. Reports from Southern California and Utah indicate good demand for new homes. The market for existing homes is also strong. This activity in housing has stimulated more retail sales by lumber dealers; plywood orders have increased and some building materials are in short supply. With this recovery in domestic construction and foreign orders increasing, the forest products industry is expanding production. Another indicator of the improved demand for housing is that many of our banking directors report increased loan demand for mortgage and for construction financing. These indications of a strengthening order pattern support expectations of a stronger upward trend in construction by the end of the year.
Agriculture production in most parts of the District has been good. Fruit crops in Oregon and Washington have escaped serious weather damage and are of excellent quality. Rain and :cool weather have hurt wheat in Eastern Washington, but in Oregon yields are expected to be high. Drought has caused serious problems for California ranchers but heavy reliance upon irrigation has limited losses of most field crops so that the overall impact on State agriculture has been small. Prospects for farm income, on the other hand, are less promising; and concern exists over declining or low prices for dairy products, cattle and many vegetables. Nonetheless, banks in agricultural areas report steady demand for loans to expand storage capacity and to buy new equipment.
In California, recent Federal legislation has allowed increased production and drilling for oil in the Elk Hills reserve. This is the largest reserve left in the United States except for Alaska. Production is expected to reach 300,000 barrels a day by 1980, and refinery capacity in the Bakersfield area is being expanded.
District banks are reporting a steady increase in loans for real estate and consumer credit. A large California bank describes the demand for credit from overseas as being firm. The demand for commercial and industrial loans, particularly in national accounts, remains flat. According to one large bank, "The crucial reason for soft demand from the largest companies is their inability to foresee an adequate return on new investment—and they have adequate cash from (a) rising long-term money and (b) current profits." In contrast, loan demand by smaller businesses and homebuilders is relatively strong.